Schizophrenia is a devastating illness that is characterized by deficits in social functioning. Social ability deficits, such as poor verbal and nonverbal social skills, negative symptoms, such as decreased motivation and emotional expressivity, and impaired theory of mind (ToM), the ability to understand the mental states of others, contribute to poor social functioning and are unresponsive to antipsychotic medications. Oxytocin (OT), a neuropeptide known to play a key role in social behavior, has shown promise as a potential treatment for these deficits. However, trials conducted thus far have yielded mixed findings, stalling translation of research into clinical practice. This is likely because these trials 1) have been underpowered and limited by use of a single dosage of OT, 2) have sub-optimally assessed negative symptoms, 3) have not focused on clinically relevant deficits such as social functioning and ToM outside of positive and negative symptoms, 4) have lacked standardized drug administration and adherence monitoring protocols, and 5) have failed to account for variability in factors that moderate OT effects at the individual level. Furthermore, we do not understand the neural mechanisms of OT effects, which impairs our ability to predict who will respond to OT. The proposed study will address each of these limitations to rigorously determine the ability of OT to improve real-world social functioning in patients with schizophrenia. Adequate power, including two dosages of OT, state of the art outcome measures, remote administration and adherence monitoring, and moderator analyses will address methodological shortcomings in the extant literature. In addition, the proposed study will provide critical information regarding the neural mechanisms of OT effects. Preliminary results show that a single intranasal dose of OT improves ToM and negative symptoms in patients with schizophrenia. Furthermore, hypo-activation in the right temporo-parietal junction (rTPJ) during ToM correlates with negative symptom severity in patients with schizophrenia. Acute OT administration increases both rTPJ activation and behavioral performance during ToM tasks and these increases are correlated. Thus, OT-induced rTPJ activation increases during ToM tasks may be the mechanism of OT's effects on social functioning. The proposed study aims are to: 1) compare the acute effects of a single administration of two dosages of OT, relative to placebo, on fMRI rTPJ activity and behavioral accuracy during ToM task performance in SZ, 2) compare the clinical and behavioral effects of two dosages of chronic OT treatment, relative to placebo, in SZ patients, and 3) determine if acute fMRI rTPJ responses to a single OT administration predicts clinical responses to chronic OT treatment in SZ patients. One hundred and fifty veterans will be randomized to receive either 20IU or 40IU of OT in a placebo-controlled, within-subject, pharmaco-fMRI study in which their neural responses on OT and placebo will be quantified during two ToM tasks. After imaging, participants will be randomized to receive either the same dosage of OT they received in the fMRI portion of the study or placebo twice daily for three weeks. Social functioning (primary outcome), social ability, negative symptoms, and ToM ability will be quantified using well-validated measures at baseline and after three weeks of OT or placebo administration. The proposed study represents a significant advance in the field for several reasons. One, it is the largest study to date and the only to simultaneously examine two dosages of OT in a single study. Two, it uses state-of-the-art assessment methodologies that are focused on the most promising outcomes based on laboratory pre-clinical studies. Three, it uses video calls to directly observe drug administration adherence. Four, it will quantify individual- level variables hypothesized to moderate OT effects in schizophrenia. Five, it will use a novel pharmaco- neuroimaging paradigm to maximize the knowledge generated from the clinical trial. The proposed study represents an important step towards developing a precision, neuroscience-informed treatment that normalizes aberrant neural processing in order to improve social functioning deficits in schizophrenia.